Big things do come in small packages.
Diedrich Coffee (Nasdaq: DDRX) is a fine
example of that axiom -- in more ways than one.
First, the coffee roaster decided to refocus on selling
Keurig K-Cup coffee. Diedrich has become a leading provider
of coffee for those
Keurig quick-and-easy cups o' Joeunder license from
Green Mountain Coffee Roasters (Nasdaq:
GMCR), and Diedrich has staged a massive turnaround based on
those tiny servings of black gold. That's one small package
for you.
As a direct result of that fundamental little revolution,
Diedrich's stock has bounced backlike no stock I've ever
seen. Coming back off a 52-week low of $0.21 per share this
spring, Diedrich's market cap was a paltry $1.2 million at
one point. If that's not a small package, I don't know what
is. And now the turnaround is complete and the stock sports a
price near $25.80 per share.
If you do the math, you'll see a heart-stopping 12,200%
return on your investment if you were brave and lucky enough
to buy during Diedrich's darkest hour. And it is virtually
locked in, because today's price includes the 28% premium
that
Peet's Coffee & Tea (Nasdaq: PEET) is
paying to acquire the company. Diedrich is trading very close
to Peet's $26 cash-and-stock offer, leaving little room for
arbitrage.
The buyout must have come as a shock to Diedrich's
management. Less than two weeks ago, Diedrich announced that
CEO Russ Phillips was stepping down. Recruitment specialist
Korn/Ferry International (NYSE: KFY) had
started looking for a replacement. And now it's a moot
point.
Peet's distribution system plus Diedrich's hot products
and top-notch coffee roasting processes should add up to
something greater than the simple sum of the parts. Sure,
even with Diedrich under its wing, Peet's is still a far cry
from the multibillion-dollar sales of
Starbucks (Nasdaq: SBUX), but the
single-serving business is booming. Diedrich reported sales
of $62 million in fiscal 2009 but expects to deliver more
than $90 million in 2010 revenue.
Don't kick yourself
toohard if you missed out on Diedrich's extravagant
gain. Longtime shareholders are doing fine, as the stock has
delivered better than 440% gains over the last five years and
640% over the last three. But as we've seen, in between,
Diedrich teetered on the brink of extinction.
This is exactly the kind of roaring-back-to-life move
you're hoping for
if you are buying
Sirius XM Satellite Radio (Nasdaq: SIRI) or
Crocs (Nasdaq: CROX)
these days. Feel free, pal. But remember the sordid
stories of
Circuit Cityand
Nortel Networksbefore you hit that "buy" button: Some
turnarounds never turn.
Diedrich
scared the heebee-jeebiesout of fellow Fool Dan Caplinger
after that roller-coaster ride. Do you see any surefire
turnarounds among
the other monster stocks of this Fooloween?
This article was originally published as
This Small Cap Will Scare You No Moreon
Fool.com
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